It was the biggest percentage gain for the Nikkei since Oct. 15, 2002.

The surge brings the index back above where it was before Jan. 16, when prosecutors raided Internet startup Livedoor Co, provoking a big sell-off.

The market has recovered since the company's head, Takafumi Horie, was arrested on Monday evening.

Shares of Sony surged 14.2 percent on the back of better-than-expected earnings that suggested a budding recovery at the Japanese company thanks to booming flat-panel TV sales. Sony's stock finished at ?5,800 (US$50).

"The biggest factor boosting investor sentiment was Sony," said Ryuta Otsuka, a strategist at Toyo Securities. "Everyone likes the story of a company coming back [from bad times], and it was Sony, after all."

Sony said its net profit rose 17.5 percent in the fourth quarter, and raised its profit forecast to ?70 billion (US$602 million) from a previous estimate of a ?10 billion net loss.

reviving economy

Investors were also heartened by signs that Japan's economy may be emerging from an extended period of deflation, when prices sink, hurting earnings and wages.

The government announced that the nationwide core consumer price index rose 0.1 percent last month from a year earlier, the first time in almost eight years that the index has gained for two months straight.

Yesterday's rally was broad, with gains in technology, retail and banking and insurance.

The broader Topix index of all shares on the exchange's first section rose 47.03 points, or 3.27 percent, to 1,690.32. On Thursday, the Topix rose 24.83 points, or 1.53 percent.

Shares in Livedoor climbed 23 percent to finish at ?139, recouping some of the losses from its tumble, a sign the Japanese market may be finally overcoming the jitters that followed the Jan. 16 raid.